RPM Takes a Licking, Keeps on Ticking

Economic turmoil in India and weakness in the roofing division punched a $56.3 million hole in RPM International’s otherwise-positive first quarter of fiscal 2013, the industrial coating giant reported Wednesday (Oct. 3).

Carboline

Carboline’s parent company took a one-time hit on the industrial side, which accounts for about two-third of sales.

Despite the resulting 56 percent drop in net profit from the one-time charges, the parent company of Carboline, Stonhard and other well-known industrial brands declared that its growth was on track and even raised its earnings guidance for the rest of the fiscal year.

"First-quarter operating results were on plan, with both our industrial and consumer segments posting increases in sales and EBIT [Earnings Before Interest and Taxes], prior to the one-time adjustments that impacted the industrial segment,” chairman and CEO Frank C. Sullivan said in releasing the company’s first-quarter earnings report.

“Most of our operating units are seeing growth in unit volume, pricing improvement, and a stabilization of raw material prices.”

Q1 Results

Overall, fiscal 2013 first-quarter net sales of $1.05 billion increased by 6.2% over same period a year ago.

Including the one-time charges, consolidated EBIT for the fiscal 2013 first quarter sank to $83.5 million, compared to $136.5 million a year ago. First-quarter net income after the charges was $33.9 million, or $0.26 per diluted share, compared to $76.8 million, or $0.59 per diluted share, of the year-ago period.

Excluding the charges, consolidated EBIT was $139.8 million, a 2.4% increase from the fiscal 2012 first quarter. Net income of $84.8 million (excluding adjustments) increased by 10.4% from a year ago. First-quarter diluted earnings per share, excluding adjustments was $0.64, an 8.5% increase over the 2012 first quarter.

One-Time Charges

A one-time non-cash charge of $45.3 million stemmed from RPM’s write-down of its investments in Kemrock Industries and Exports Limited in India. The company blamed “deteriorating local economic conditions and their impact on Kemrock's stock price and operating performance.”

A write-down is a reduction in the value of an asset carried on a firm’s financial statements.

RPM also incurred an $11.0 million charge in the roofing division of its Building Solutions Group, mainly due to its decision to “exit certain unprofitable contracts outside of North America in order to better focus on the company's successful core roofing business in the U.S. and Canada,” the company said in a release.

Industrial Segment Growth

RPM’s industrial companies make up two-thirds of its net sales. Those brands include Tremco and Tremco illbruck, Carboline, Stonhard and Flowcrete.

The industrial segment also benefited from improvement in the North American commercial construction sector, but that sector is still catching up to its pre-recession levels, the company said.

Including adjustments, industrial segment sales improved by 5.4%, to $703.3 million, from a year ago, with 1.0% in volume improvement, 1.8% in pricing increases, and acquisition growth of 8.1%. The growth was partially offset by 5.5% in foreign exchange losses. Including adjustments, industrial segment EBIT declined 16.8%, to $76.9 million.

Excluding the adjustments, first-quarter sales increased 5.9% to $706.2 million, and EBIT increased 5.6% to $97.7 million from the year-ago quarter.

Other industrial businesses that performed well included Carboline corrosion control and fireproofing products, Stonhard high-performance polymer flooring, and several North American-based RPM2 companies.

The Medina, OH, holding company had mixed news in the commercial sector.

"We are seeing gradual improvement in North American commercial construction, which affects about 30% of our industrial segment and which is still considerably below its pre-recession peak,” said Sullivan.

He added: “In contrast to our other major North American based businesses, our roofing division is also suffering year-over-year declines.”

Consumer Segment Bounce

On the other hand, RPM's consumer segment reported a 7.7% increase in sales, to $343.4 million, over the first quarter of fiscal 2012. Organic sales were up 6.1%, including 5.3% in volume growth and 2.4% from pricing, partially offset by 1.6% in foreign exchange translation losses. Acquisition growth added 1.6%.

During the fiscal 2013 first quarter, cash from operations was $17.7 million, up from $7.5 million a year ago. The strong cash and liquidity position will easily support the company’s “vigorous acquisition program, which has added companies generating more than $410 million in annual sales to the RPM family of companies since the beginning of fiscal 2012," said Sullivan.

"Our debt-to-total capital ratio remains at the low end of our historic norms, and we are continuing to pursue acquisitions that complement our core competencies."

In the first four months of fiscal 2013, RPM acquired three companies with annual sales of about $225 million, broadening the company’s reach both geographically and across product lines. The recent additions are:

• Kirker Enterprises, Inc., a leading manufacturer of nail care enamels, coatings components and related products for the personal care industry; and

• Viapol Ltda., a leading Brazilian manufacturer and marketer of building materials and construction products.

Business Outlook

The one-time adjustments did not dampen the company’s outlook for the rest of the fiscal year.

RPM increased its guidance, which had anticipated consolidated sales growth of 5% to 10%, to a consolidated sales increase of 8% to 10%.

It also increased its July earnings guidance of 5% to 10% to between 9% and 12% ($1.80 to $1.85 per share, prior to one-time adjustments), “as a result of continued robust growth in North America, recent acquisitions and more favorable foreign currency comparisons during the back half of this fiscal year," said Sullivan.